SHARIAH PRONOUNCEMENT In the name of Allah, the Most Gracious, the Most Merciful All praise is due to Allah, the Cherisher of the world, and peace and blessing upon The Prophet of Allah, on his family and all his companions CIMB ISLAMIC BANK BERHAD Proposed Tier 2 Junior Sukuk Programme With a Limit of RM2.0 Billion in Nominal Value ( Junior Sukuk Programme ) CIMB Islamic Shariah Committee (the Shariah Committee ) has reviewed the proposed structure and mechanism to be entered into in respect of the proposed Junior Sukuk Programme by CIMB Islamic Bank Berhad ( CIMB Islamic or the Issuer ) to ensure compliance with Shariah principle of Musyarakah. Except where defined herein, defined terms used in this Shariah Pronouncement have the meanings given in the Principal Terms and Conditions in connection with the Junior Sukuk Programme. 1. STRUCTURE AND MECHANISM The proposed structure and mechanism will be based on Shariah principle of Musyarakah the principle features of which are as follows:- 1.1 Musyarakah: The Investors via the Trustee shall from time to time form a Musyarakah among themselves and shall invest in certain Shariah-compliant Trust Assets (as defined below) of the Issuer. Such investment in the Trust Assets will be referred to as Musyarakah Venture. The Investors shall contribute their portion of Musyarakah Capital for the purpose of the Musyarakah Venture by subscribing to the investment certificates (i.e. Junior Sukuk) issued by the Issuer. Proceeds received shall be utilised by CIMB Islamic for its Islamic banking operation or any other Shariah-compliant purposes as approved by the Shariah Committee. 1.2 Musyarakah Venture: Investment in certain Shariah-compliant Trust Assets of the Issuer. 1.3 Trust Assets: The Trust Assets of each issuance would be Shariah-compliant business(es) of CIMB Islamic or any other Shariah-compliant asset approved by Shariah Committee. 1.4 Manager of Musyarakah Venture: The Trustee, on behalf of the Sukukholders shall appoint the Issuer to manage the Trust Assets, for which the Issuer shall be paid an incentive management fee ( Incentive Fee ) arising from the cashflow in excess of the Periodic Payment. 1.5 Entitlement of Sukukholders: The Junior Sukuk shall entitle the Sukukholders to the following: an undivided share of beneficial ownership in the Trust Asset (the quantum of which is evidenced by the Musyarakah Capital); a right to share the income generated from the Trust Asset (in proportion to their undivided ownership based on a pre-agreed percentage) but on the basis that payments of such share of the income ( Periodic Payment ) shall:
a) be equivalent to the Periodic Payment Amount in relation to each tranche of the Junior Sukuk provided always that in the event that the Periodic Distribution on any Periodic Payment Date is insufficient to pay the Periodic Payment Amount then the Issuer shall make Advance Payment equal to such deficiency. For avoidance of doubt, failure by the Issuer to make such payment shall constitute a Dissolution Event; and b) be received by the Sukukholders on the Dissolution Dates and/or Periodic Payment Dates whereby, for avoidance of doubt, failure by the Issuer to make such payments of Periodic Payment to the Sukukholders on the Dissolution Dates and/or Periodic Payment Dates shall constitute a Dissolution Event; and the benefit of the Purchase Undertaking. 1.6 Periodic Payment Amounts and Periodic Payment Dates: Sukukholders will be entitled to Periodic Payments on the Periodic Payment Dates. Periodic Payments (based on pre-agreed percentage) in relation to each tranche of the Junior Sukuk made during the tenor of the Junior Sukuk ( Periodic Payment Amounts ) will comprise: periodic payments of the distribution made during the tenor of the Junior Sukuk from the income generated from the Trust Assets ( Periodic Distributions ); and advance payments made during the tenor of the Junior Sukuk ( Advance Payments ) provided that on any Periodic Payment Date, the aggregate of the Advance Payments and the Periodic Distributions, shall be equal to the Periodic Payment Amounts. 1.7 Expected Return: The Sukukholders shall agree that the Periodic Payment Amount will not, in any event, exceed the Periodic Payment (calculated based on the Periodic Payment Rate on the Sukuk) which is the expected profit rate of the Junior Sukuk. 1.8 Musyarakah Capital: Issue proceeds received from the Sukukholders pursuant to their subscription to the Junior Sukuk issued by the Issuer. 1.9 Call Option: Each issuance of Junior Sukuk under the Junior Sukuk Programme may have a callable option ( Call Option ) (to be determined prior to each issuance). Under the Call Option, if applicable for the relevant tranche, the Issuer shall have the option to redeem the Junior Sukuk on any Optional Redemption Date. For each tranche of the Junior Sukuk issuance where a Call Option is applicable, the Sukukholders shall grant an option to CIMB Islamic, and subject to prior approval from Bank Negara Malaysia, CIMB Islamic may, at its sole discretion exercise such option to acquire the Sukukholders interest in the Musyarakah Venture (in whole or in part) on any Optional Redemption Date at the Exercise Price. The Call Option exercised by the Issuer either to redeem in whole or in part in relation to one tranche does not trigger the exercise of the options in other tranches. In the event, the Issuer exercises the Call Option to partially redeem the Junior Sukuk in one tranche, all holders of that tranche shall be redeemed on a pro-rata basis. 2
1.10 Purchase Undertaking: CIMB Islamic intends to acquire the interest of the Sukukholders in the Musyarakah Venture at the Exercise Price upon the occurrence of either of the following: the maturity date (which shall also be known as Mandatory Redemption Date ); or the declaration of a Dissolution Event; or upon the exercise of the Call Option of the Junior Sukuk on Optional Redemption Date 1.11 Expected Profit Rate: The expected profit rate of the Junior Sukuk is to be determined prior to the issue date of each issuance ( Periodic Payment Rate ). For issuances with a Call Option, unless the Junior Sukuk are fully redeemed on the first Optional Redemption Date, the Sukukholders will be entitled to a step-up Periodic Payment Rate from (and including) the first Optional Redemption Date and up to (excluding) the earlier of the date of early redemption or the maturity date of the Junior Sukuk. The step-up Periodic Payment Rate per annum for each issuance shall be determined prior to the issue date of each issuance. 1.12 Identified Asset: The Shariah-compliant business(es) of CIMB Islamic or any other Shariah-compliant asset approved by the Shariah Committee. 1.13 Exchange of Trust Assets: The Issuer shall have the right to exchange the Trust Assets with qualified Trust Assets ( Qualified Assets ) or purchase in whole or part of the Trust Assets pursuant to an exchange agreement. Qualified Assets shall mean assets which have been endorsed by the Shariah Committee. For each issue, the value of the Trust Assets, which is determined based on the value at cost, shall be at least equivalent to the nominal amount of the Junior Sukuk outstanding at that point in time. For the avoidance of doubt, the total value (to be determined at cost) of the Trust Assets shall at all times be at least equivalent to the total nominal value of the Junior Sukuk outstanding. In case of any exchange of Trust Assets, the value of the new Trust Assets to be injected must be at least equivalent to the value of the Trust Assets to be replaced (which shall be valued at cost). As such, the value of the Trust Assets shall remain at least at the same level before any exchange of Trust Assets. 2. IMPORTANT HIGHLIGHTS The Shariah Committee would like to highlight the followings: 2.1. Utilization of Proceeds: The proceeds of the Junior Sukuk shall be made available for the Islamic banking operation of CIMB Islamic or any other Shariah-compliant use as approved by the Shariah Committee. Currently, CIMB Islamic and its operation are offered by its branches in Malaysia, Singapore, London, Labuan and Hong Kong. 2.2. Purchase Undertaking: CIMB Islamic intends to acquire the interest of the Sukukholders in the Musyarakah Venture at the Exercise Price upon the occurrence of either of the maturity date, the declaration of a Dissolution Event, upon the exercise of the Call Option or upon cancellation following the purchase of the Junior Sukuk in the open market or by private treaty by the Issuer. 3
The permissibility of the Purchase Undertaking mechanism as mentioned above would be based on the following: (iv) The Sukukholders as the co-owner of the Trust Asset under the Musyarakah have the right to sell their interest in the Trust Asset to a third party i.e. CIMB Islamic at any point of time during the tenure of Musyarakah and to seek an undertaking to purchase from the interested party i.e. CIMB Islamic so long the arrangement is based on mutual agreement (al-taraadhi); The Purchase Undertaking is made unilaterally by one party i.e. CIMB Islamic and it binds on the person who made the promise in the perspective of religion. The promisor is obliged to fulfil the promise, especially when the promise relates to the performance of certain act, or when it requires certain commitment from the promisee (Wa ad Muwarrat); The Sukukholders are not devoid of all risks as the performance of the Musyarakah Venture and the Purchase Undertaking are still subject to the operation of the Trust Assets and the credit standing of CIMB Islamic respectively; and The principle of 'Urf or common practice in the industry and the expectation of investing in fixed income instruments as long as it is free from riba, gharar and other prohibition which will render the contract invalid. 2.3. Purchases by CIMB Islamic: The Issuer may at any time acquire the Junior Sukuk at any price in the open market or by private treaty. If purchases are made by tender, such tender must (subject to any applicable rules and regulations) be made available to all holders of the relevant issuance equally. Junior Sukuk purchased by CIMB Islamic shall not be used for voting purposes or for directing or requesting the Trustee to take any action. Subject to the approval from BNM, all Junior Sukuk purchased by the Issuer may be cancelled at the Issuer s discretion. 2.4. Waiver of Interest: For the avoidance of doubt and notwithstanding any other provisions contained in this Principal Terms and Conditions, the Issuer, Junior Sukukholders and/or other relevant parties under this Junior Sukuk Programme recognise that the receipt and payment of interest is not permitted under Shariah and accordingly agree that if any claims for amounts due under any Financing Documents are made in a court of law and that court, by applying the laws and regulations of its legal system, imposes an obligation to pay interest on the amounts being claimed, the Issuer, Junior Sukukholders and/or other relevant parties under this Junior Sukuk Programme hereby irrevocably and unconditionally expressly waive and reject any entitlement to recover such interest. 2.5. Ta widh: In the event of overdue payments of any amount pursuant to the Purchase Undertaking, the Issuer shall pay compensation (Ta widh) on such overdue amounts at the rate and/or any other manner prescribed by the Shariah Advisory Council of the Securities Commission. 3. DOCUMENTATION 3.1. The Shariah Committee has reviewed the Shariah aspects of the following documentation in respect of the Junior Sukuk Programme: a) Programme Agreement, including form of Musyarakah Agreement (and Form of Exchange Agreement) in Schedule 5 and form of Subscription Agreement in Schedule 6; b) Trust Deed; 4
c) Deed of Undertaking including form of Transfer Agreement in the Annexure; d) Power of Attorney including form of Transfer Agreement in the Annexure; e) Management Agreement; f) Agency Agreement; and g) Depository and Paying Agency Agreement; 4. APPROVAL 4.1. The Shariah Committee is of the view that, given the prevailing circumstances, the structure and mechanism as set out above is acceptable within the principles of Shariah, the jurisdiction under which the arrangers of the Junior Sukuk Programme and the Issuer operate and that the documents referred to in clause 3.1 above (the Documents ) reflects the above structure and mechanism and the Shariah Committee hereby approves the Documents reflected above for the Junior Sukuk Programme, subject to proper execution of the same. 4.2. In arriving at the decision, the Shariah Committee also took into consideration the following issues: a) The legal constraints under which the Junior Sukuk Programme is being developed; b) The need to develop the Islamic finance industry, particularly in respect of the Islamic financing; c) The need to facilitate the increasing need of corporates and financiers to mobilise funds according to Shariah principles; and d) The prevailing conditions and affairs of the Ummah and the need to remove them from the shackles of riba. And He knows best. On behalf of CIMB ISLAMIC SHARIAH COMMITTEE ABDUL GHANI ENDUT Head, Shariah Advisory Islamic Banking Division Dated : 10 June 2009 5